Published May 7, 2009

Buy Noble, SingTel; sell SIA, Cosco: CIMB-GK

Rise in Cosco shares due to investors' bigger risk appetite

By NISHA RAMCHANDANI

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CIMB-GK Research recommends going long on Noble Group and Singapore Telecommunications, and short on stocks such as Singapore Airlines and Cosco Corp which still appear to have a rough ride ahead.

'We expect Noble to be one of the first stocks to rebound from this recession on any hint of economic stability or recovery,' CIMB's Lawrence Lye says in a research note dated May 5, pointing out that Noble's share price has risen over 40 per cent from $1 since March 11 and its CY10 P/E valuation of 7.7x remains attractive.

CIMB believes that the 55 per cent jump in Cosco shares from 70 cents in March was due to the 'improvement in investors' risk appetite', which led to the overall rise in global bourses. 'Cosco's CY10 P/E of 10x appears excessive in relation to its uncertain prospects. We believe there are downside risks for investors,' it said.

With a cloudy outlook and the Cosco management being unable to provide a clear delivery schedule beyond 2009, there could be deferment of projects or cancellations, Mr Lye says.

And while Cosco recently landed a contract to convert a very large crude carrier (VLCC) tanker to a floating production storage and offloading (FPSO) vessel from Mitsui Ocean Development & Engineering Co, Cosco still faces the risk of potential re-negotiations and possible delivery delays from clients given the credit crunch, says Kim Eng analyst Rohan Suppiah.

Kim Eng has called a 'sell' on Cosco with a target price of 81 cents, while CIMB has a target price of 36 cents.

Meanwhile, the recent outbreak of Influenza A (H1N1) means more bad news for SIA, which has already been seeing falling passenger and cargo loads due to the economic slowdown.

In contrast, SingTel is likely to see a rise in the use of teleconferencing and international calls as the pandemic alert discourages both business and leisure travel, Mr Lye reckons.

CIMB has recommended going long on SingTel and short on SIA, with target prices of $3.05 and $7.60 respectively.

Noble gained 12 cents yesterday to close at $1.58, exceeding CIMB's target price of $1.50.

Cosco was up eight cents at $1.20 while SIA surged 64 cents to $12.34. SingTel closed 18 cents higher at $2.75.